TNAG-2515-FCO40-3669-Future-of-Hong-Kong-International-Rights-and-Obligations-Sub-1992 — Page 18

CONFIDENTIAL

нкс

031/90.

CONFIDENTIAL

FM HONG KONG

TO PRIORITY FCO

TELNO 2825

OF 04040OZ DECEMBER 92

AND TO PRIORITY UKDEL IMF/IBRD WASHINGTON, PEKING,

AND TO PRIORITY UKREP JLG HONG KONG

pu

G

132372

MDLIAN 9760

HONG KONG: IMF ARTICLE IV CONSULTATIONS 1992.

1.

THE CONSULTATIONS WERE CONDUCTED ON 4 TO 14 NOVEMBER BY A STAFF MISSION LED BY BIJAN AGHEVLI, DEPUTY DIRECTOR, CENTRAL ASIA DEPARTMENT. AGHEVLI GAVE AN ORAL PRESENTATION TO THE FINANCIAL SECRETARY ON 12 NOVEMBER AND HANDED OVER A DOCUMENT ENTITLED QUOTE CONCLUDING REMARKS UNQUOTE THE FOLLOWING DAY, WHICH THE MISSION DISCUSSED WITH HKG REPRESENTATIVES ON 14 NOVEMBER.

2.

THE MISSION CONFIRMED THE VALIDITY OF OUR BROAD POLICY APPROACH. IT GAVE FULL SUPPORT TO THE LINKED EXCHANGE RATE SYSTEM AND WELCOMED THE ESTABLISHMENT OF THE MONETARY AUTHORITY. IT EXPRESSED CONCERN, HOWEVER, OVER THE REDUCTION IN FISCAL SURPLUS AND THE EXPANSIONARY EFFECT OF THIS. WE ARE SENDING YOU BUT NOT OTHER RECIPIENTS A COPY OF THE CONCLUDING REMARKS BY CONFIDENTIAL FAX. A SUMMARY OF THE DOCUMENT IS SET OUT BELOW.

ECONOMIC GROWTH AND PROSPECTS

3. THE ECONOMY HAS PERFORMED STRONGLY, WITH FURTHER GAIN IN GROWTH MOMENTUM UNDERPINNED BY RAPID INCREASES IN INVESTMENT AND PRIVATE CONSUMPTION, INCREASES IN EXPORTS AND RE-EXPORTS AND STRONG CONFIDENCE. THE MISSION EXPECTS THAT THE GDP GROWTH SHOULD REACH, OR EVEN EXCEED, OUR OFFICIAL FORECAST OF 5 PERCENT FOR 1992. GROWTH PROSPECTS FOR 1993 REMAIN FAVOURABLE.

INFLATION

4"

WHILE THERE HAS BEEN SOME RELIEF, INFLATIONARY PRESSURES PERSIST WITH THE RECENT TIGHTENING OF THE LABOUR MARKET AND WITH THE ECONOMY OPERATING AT FULL CAPACITY. THE MISSION IS CONCERNED THAT STRONG PRIVATE DEMAND FUELLED BY LOW INTEREST RATES, COMBINED WITH SUBSTANTIAL PRIVATE AND PUBLIC SECTOR

INFRASTRUCTURAL INVESTMENTS FOR THE NEW AIRPORT, COULD LEAD TO AN ACCELERATION OF INFLATION. THEY FEEL THAT AN INCREASING

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